Channel Rationalization: Keeping up with Customer Behavior Shifts

Ah, the Internet: a beautiful expanse of information, as scary as it is mesmerizing. It has changed how we work, how we think, and how we socialize. It has also completely changed how we shop. You don’t have to look far to find cautionary tales where the internet has affected brick-and-mortar retail. Former greats like Blockbuster, Borders, and Circuit City have all folded because of online alternatives. Department store stalwarts, JC Penney and Sears, have closed many of their locations in an effort to reduce physical store costs. All the while, Amazon posted its 8th straight quarter of growth (AWS notwithstanding) and total e-commerce sales increased 15.1% in 2016 (from 2015).

Why have some physical retailers struggled? The biggest reason is perhaps convenience. Why go mattress shopping at four different stores when you can research mattresses online, click a few buttons, and wait for your mattress to arrive in a box at your door? The wealth of pricing, assortment, and inventory information that is available online has also created some behaviors that put pressure on traditional retailers. The most well-documented is “showrooming,” where customers visit a brick-and-mortar store to look at and feel the product then go online to buy it. In industries where bartering still exists, such as car dealerships, margins are stalling because customers are armed with market pricing from a 500 mile radius. How can brick-and-mortar retailers keep up?

Know Your Customer

Get customer feedback so you truly understand what they want out of their retail experience. An easy conclusion to make is that customers are mainly concerned about price or convenience. Those might be motivating factors in a lot of churn cases. However, loyalty is the absence of something better and customers are not beholden to those factors. Perhaps the checkout experience is too slow and is turning customers off. Perhaps store inventory is hit-or-miss and customers don’t want to take a chance. Ask them to make sure they know you are listening.

Make it Easy

As we mentioned before, convenience is a strong reason for the shift to online retail. Customers can readily compare price and quality across products and retailers online. To convert shoppers in-store, you must arm them with the information they need to buy. Knowledgeable staff can help customers answer vague or specific questions that cannot be answered online. Integrating your online and physical experiences can also entice customers to visit the store. Apple is a great example, where knowledgeable staff already know why you are there and can quickly check you out anywhere in the store.

Go Beyond Product

Physical stores have an advantage over online channels in that customers can not only see a product but they can feel, taste, hear, and smell product and the environment while in-store. Some successful retailers have created unique in-store experiences that can’t be replicated online. Lululemon is offering free in-store yoga classes and Urban Outfitters is adding restaurant/bar concepts to their stores in an effort to connect with their customers beyond their product. Online retailers (e.g. Suit Supply, Warby Parker, Amazon) have taken note and started to set up brick-and-mortar stores to provide curated experiences beyond their web store interfaces.

Eric is a management consultant with North Highland and has experience in customer analytics, program management, process improvement, and design spanning across the retail and consumer products industries.